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Softening of regulatory stance towards cryptocurrency exchanges has led to a burgeoning of cryptocurrency exchanges in India. However, the absence of a definite regulatory environment, often perplexes the founders of cryptocurrency exchanges vis-à-vis, the compliances and the legal documentation that they should have in place. We, through this post, outline the core legal policies, which every cryptocurrency exchange business should have in place.
Terms and Conditions
While having a properly drafted terms and conditions policy is the pre-requisite for every online business, it becomes even more crucial for a cryptocurrency exchange. The terms and conditions drafted for a cryptocurrency exchange business should take into account the following factors:
A proper disclaimer should be built in the policy, clearly asserting that the exchange is nothing but an intermediary facilitating the buying and selling of legal cryptocurrencies.
Clear definitions of “Wallets” should be included. Cryptocurrency exchanges may have separate Wallets for storing cryptocurrency and fiat currency, the distinction should be made clear.
What currency can be used to buy the cryptocurrency should also be explicitly stated.
As financial information may be shared the terms of use should have effective personal data clauses.
Terms of using the Wallets and outlining of conditions such as minimum balance required should also be included in the terms of use document.
Privacy Policy
A cryptocurrency exchange may obtain personal information of an individual not only limited to their name and contact details but also financial information such as bank account details, credit card information etc. Hence, it is pertinent that a strong privacy policy is drafted. Ensure that you list out all possible uses of the data and whether the data would be shared across jurisdictions. Moreover, owing to the global nature of cryptocurrency exchanges, it is pertinent that not only Indian laws but also foreign applicable laws are taken into account while drafting privacy policy for a cryptocurrency exchange.
1. Listing/De-listing Policy
All cryptocurrency exchanges should have a clear criteria for listing/de-listing of a particular cryptocurrency. Some criteria pertinent for listing/de-listing a cryptocurrency are:
Credibility of the issuer.
Volatility of the cryptocurrency.
Liquidity
Trading volume
A thorough due diligence of the cryptocurrency should be done before listing it for trading on the cryptocurrency exchange.
Anti-Money Laundering Policy
It is important to have a clearly drafted AML Policy in place. Records of transactions should be maintained by the Cryptocurrency exchange in accordance with the applicable law and a clear provision for the disclosure of the same should also be made. Proper identity verification of users should also be done.
Cryptocurrency exchanges are a nascent business in India. In the absence of clear regulatory mechanism, it becomes difficult to ascertain the level of legal compliance and legal documentation required. These are some of the very basic policies that every cryptocurrency exchange should have. In addition to these, it is important to maintain dynamic compliance checklists and a set of standard agreements such as services agreements, vendor agreements, agreements with payment gateways etc.
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